Informal Savings in Physical Assets
RCTReview
Low-income microfinance borrowers lacking formal banking access face severe difficulties securing uninvested loan capital against theft, self-control pressures, or family demands when forced to hold cash for immediate installment repayments.
Picture this
Imagine a vendor who receives cash for her business but knows that if she keeps paper money in her pocket, relatives will ask to borrow it or it might get stolen. To lock the money away safely while keeping it accessible if needed, she buys a few stacks of bricks every week to store behind her house until she is ready to build.
What the evidence says
Control borrowers on standard early-repayment contracts allocated Rs 557.2 to house repairs (representing 58.6% of the non-business spending gap between groups), whereas grace period borrowers reduced house repair purchases by Rs 208.8 to Rs 222.1 to invest directly in illiquid business stock.
- Who was studied
- N = 845 low-income female MFI borrowers in Kolkata, India.
- How
- RCT comparing loan expenditure across debt contract types combined with qualitative follow-up interviews on incremental house repair purchases.
What to do
Design commitment savings products backed by low-depreciation inventory vouchers to give borrowers a secure storage mechanism for cash reserves without incurring material construction transaction costs.
From the source
"the majority (five) of clients reported incremental purchase of housing materials (including bricks and bags of concrete) which they stored for up to a month prior to construction... Housing materials were preferred to cash on hand both because they are harder to steal, and because liquidation for personal consumption imposes transactions costs on household members"
101_290 microfinance and entrepreneurship AER2013.pdf